1. The administrators of, by, for, and to capitalism; those defenders of free-er markets and cheaper labor; the guardians of commerce who are simultaneously the barbarians inside the gate; the protectors of the properties of value and vice-versa– all of them, those those central bankers and national treasurers having been huffing and puffing like reverse big bad wolves– this time to keep the house from blowing down. Part of their problem is, they can’t do anything in unison and in time, so all we really get is a big sucking sound.
Nobody has huffed and puffed, and no body has sucked in bigger breaths since 2008 than the US Federal Reserve Bank. The Fed progressed its version of financial origami, fashioning something that looked like an asset out of not even paper but virtual paper, moving from trade to craft to art– that is to say from advertising to spectacle. The Fed blew a veritable deluge of dollars through the world of exchange with its open ended currency swap lines with other central banks, injecting dollars on demand like atropine and epinephrine into a body approaching fatal anaphylaxis.
The Fed went from special investment vehicles to asset relief programs; from Maiden Lane to Threadneedle Street; to Sonnemannstrasse; to Nihonbashi; to Quadra 03, Bloco.
The Fed then sucked in trillions of dollars in face value of US government, and government agency, debt instruments, buying the securities not from the Treasury itself….which would place the Fed in competition with the approved “primary dealers” as a market-maker for US debt instruments, but from those primary dealers. Nothing says “arms-length,” nothing is as essential to the image of chasteness, as separation of the co-habiting couple the day of the wedding. Baby, let me scratch your back.
The Fed’s balance sheet, less than 1 trillion dollars in March 2008, hit an interim peak of $4.47 trillion in December 2016, declined to $3.78 trillion in August 2019 when the Fed, measuring the slowing of the great American cash machine and feeling the faint winds of recession, resumed buying, to the relief of the primary dealers–
Amherst Pierpont Securities LLC
Bank of Montreal, Chicago Branch
Bank of Nova Scotia, New York Agency
BNP Paribas Securities Corp.
Barclays Capital Inc.
BofA Securities, Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse AG, New York Branch
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman Sachs & Co. LLC
HSBC Securities (USA) Inc.
J.P. Morgan Securities LLC
Mizuho Securities USA LLC
Morgan Stanley & Co. LLC
NatWest Markets Securities Inc.
Nomura Securities International, Inc.
RBC Capital Markets, LLC
Societe Generale, New York Branch
TD Securities (USA) LLC
UBS Securities LLC.
Wells Fargo Securities, LLC.
The primary dealers were ecstatic at the return of the counterparty with the deepest of deep pockets.
When the Fed purchases these debt instruments, it pays cash, or at least the book-entry equivalent of cash to the primary dealers who then can use the money to…further their other financial operations, like investment in capital markets; their investment in property markets; their investment in structured securities, asset backed securities, equity securities, those very instruments that can be presented as collateral even to the Fed itself in a (seemingly) loop of infinite proportions and rotations.
In twelve months, the Fed’s balance sheet expanded to $7 trillion dollars of these securities and continued to grow, reaching $8.87 trillion last week. That’s almost 45 percent of last year’s GDP liquidated into cash and dropped into the upturned hats of the 24 primary dealers. Nice work if you can get it, and you can get it if you’re on the list.
The Fed’s efforts were truly spectacular. But not so unique. Indeed this QE was simply the open-market operations–creating or reducing reserves, expanding or shrinking the supply of money– writ large.
Size matters. Size is everything when it comes to liquidity and markets.
The faint whiffs of recession the Fed detected in 2019 became gale force winds in March 2020 with the onset of the Covid 19 panic. In the second quarter of that year, production and trade cratered. The Fed introduced new swap lines to the existing swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The “new” clients were the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank . These banks were limited to $60 billion in dollar swaps. Lines were opened with Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand, each capped at $30 billion in swaps.
The more things change……the more they don’t. These banks had all been lifelined to the Fed currency swaps in 2008.
The Fed forged ahead back to the past. In March 2020, the Fed reopened the Primary Dealer Credit Facility to provide collateralized loans to the Primary Dealers. By April, the PDCF had $33.4 billion in loans outstanding. The facility remained open until March 2021.
Also in March 2020, the Fed authorized its New York Branch to operate the Commercial Paper Funding Facility (CPFF). The CPFF protects the US issuers of unsecured and asset-backed commercial paper with 90 day maturities by purchasing the paper directly from the issuers, in case– just in case the money market funds seize up. If this sounds familiar, it should. The CPFF too comes to us from 2008.
You can’t have have a CPFF without a Money Market Mutual Fund Liquidity Facility (MMFLF), because in this daisy chain on a merry-go-round spinning atop a pyramid, the money market funds are supposed to buy the commercial paper and then use the commercial paper as collateral to secure loans from banks. If the MMFs can’t sell the paper, then the MMFs can’t satisfy redemptions, and then everybody is MFd.
So the Fed took another page from the archive of 2008 and reestablished the MMFLF.
The US Congress passed the CARES Act in which $500 billion was made available to support the Fed’s responses to the pandemic. The Fed rolled out the:
Primary Market Corporate Credit Facility (PMCCF) to purchase newly issued corporate debt and the Secondary Market Corporate Credit Facility (SMCCF) to purchase already issued corporate debt or corporate debt exchange traded funds (ETFs);
Term Asset-Backed Securities Loan Facility (TALF) to counteract another dramatic fall in the market for securities backed by auto loans, student loans, corporate credit card loans, ad nauseum;
Municipal Liquidity Facility (MLF) to purchase short term state and local bonds, and prevent a rise in interest rates in that market:
Paycheck Protection Program Liquidity Facility (PPPLF) to “offer a source of liquidity to financial institution lenders that lend to small businesses through the Small Business Administration Paycheck Protection Program” (FRB, Periodic Report: Update on Outstanding Lending Facilities Authorized by the Board under Section 13(3) of the Federal Reserve Act May 9, 2021). This was the most heavily trafficked of the special facilities, distributing almost $74 billion through 10, 500 loans to 650 banks (Congressional Research Service, The Federal Reserve’s Response to COVID-19: Policy Issues, February 8, 2021);
Main Street Lending Program (MSLP) bought new or increased loans with a 5 year duration from banks and other institutions. The loans were made to smaller and medium sized businesses. The program was essentially a guarantee to the banks, and a rescue to the businesses experiencing a severe drop in revenue due to the pandemic. The MSLP stopped purchasing loans in January 2021.
The US Federal Reserve Bank, once upon a time the lender of last resort, today the lender of last resort, first resort, and all resorts, spas, fine-dining restaurants, country clubs, gated communities in-between.
Was the Fed, fighting the “last war,” replaying the recovery from 2008? The answer is obvious: What recovery? There has been no recovery from that contraction. Rather, the lack of recovery has been incorporated into the everyday activities of corporations, central banks, and government.
2. Value is generated, reproduced, and accrued through the confiscation of labor-time; that is to say by and because of the conflict of those laboring, the laborers, with the condition of labor. That labor is forced, compelled, to present itself as the laborers present themselves, as a value to be exchanged for the means of their own reproduction, or for a value equivalent to the value for their own subsistence. Labor is necessary, and labor does “come with” the intrinsic purpose– to make human beings “at home” in the physical world. Labor is mediated by its relation to the means of production, its social organization. Labor, under capitalism is mediated, expressed as labor-power, only a portion of which is reapplied to the laborers and then only to reproduce them as “alien” to condition of exchange, as subordinate to the loss of their own capacities.
Does this appear to be a circular explanation? Of course, it does.
Is this a circular explanation? It is not. It is an accurate description of the social relations, the actual relations of classes engaged in the generation and appropriation of value.
The labor-time of the laborers is mediated by the organization of property such that the time does not always, and need not ever, satisfy the needs of the laborers, satisfy those direct dependents of the laborers, or satisfy the individual requirements of all members of the class thus satisfying the class as a whole. The mode of confiscation of labor-time cannot both maintain the production of private wealth while enhancing the security, the welfare, the health, the education, the creativity, the tranquility, “the common good” of all against ignorance, disease, catastrophe, emergency.
In fact, the condition imposed upon labor, that maintenance of this private property, facilitates disease, catastrophe, emergency in two ways– one being the neglect, and disavowal, of the possibility of such events; the other being the creation, manipulation of catastrophe as a market, as a platform to strip society of protections and force more and more into a condition of propertyless-ness.
3. Marx writes, in his critique of the social conditions in France 1848-1850, prior to the ascension of Louis Bonaparte, that
Since the finance aristocracy made the laws, was at the head of the administration of the state, had command of all the organized public authorities, dominated public opinion through the actual state of affairs and through the press, the same prostitution, the same shameless cheating, the same mania to get rich was repeated in every sphere, from the court to the Café Borgne to get rich not by production, but by pocketing the already available wealth of othersMarx, Class Struggles in France 1848-1850
It’s been 170 years since Marx wrote those lines. Great art is timeless. Marx is just as much artist as scientist, if not more. Like good art, those lines sure do establish a platform to build upon.
So let’s try a 21st century restoration of a great worker of art:
Since the capitalist class made the laws through the institutions that, as a body, breathed corruption, cruelty, with every circuit of commerce;
because this class has almost always funded morons and mediocrities to administer the state;
and dominated public opinion through the dissemination of lies, and by the beatification of crackpots and crackpot theories…
and has always secured its possessions through the disavowal of responsibility embodied in necessary for and intrinsic to the existence of the corporation…
then the shameless cheating and brutality that the class practiced on and toward others, manifested itself in every interaction among the members of the class itself…
the same mania for swindle was repeated in every locale, from Manila to Mar-a-Lago; to get rich not by production, not by pocketing the already produced wealth of others, but by placing a surcharge on the liquidation of that wealth already picked from the pockets of others.
Capitalism really is the dictatorship of the bourgeoisie. Advanced capitalism, stuck in its accelerating decrepitude, really is the dictatorship of the recidivist bourgeoisie.
4. The production of values in capitalism is not determined by, or effected solely through, the confiscation of the products of labor. The appropriation of objects resulting from varied, individual, particular, labors is not unique to capitalism. It is the mode of appropriation of that distinguishes capital as a system. That mode requires, presumes, the appropriation not of an individual laborer, but laborers, as a collective force, and their labor as an undifferentiated, homogenous mass, or at least as a category where all difference, all peculiarities are dissolved and made invisible by the production process itself. In order to conform to the featureless world where value exchanges with value, labor has to be expressed in its detachment, in its abstraction, in the inversion of its common quality, time, specifically as time lost.
Money isn’t exactly time, but it represents the time made universal through and in its negation; in its confiscation by and conversion into assets belonging to owners.
Oh, for the return of Captain Swing.
5. At every moment in its history, capital and its owners oscillate between the accumulation of assets and their liquidation; between the expansion of private wealth and abyss of personal bankruptcy; between the economies imposed by competition and the costs of expansion. Somehow, someway, it’s supposed that all that is ephemeral, tangential, inconsequential, and that all modes of production “seek equilibrium,” and that capitalism, being one such mode of production, “seeks equilibrium.”
“Equilibrium,” however, is a goal not of the mode of production, but of the owners of the property of that mode of production, and by “equilibrium” they, those owners, mean the preservation of their property, their ownership.
The mode of production of value knows no such stability, knows nothing of equilibrium.
given: competition, private ownership, class;
given: the separation, the opposition of production and consumption;
given: the mediation of production and consumption by profit;
given: the confiscation, dispossession, of the results of labor activity, labor potential, labor power, labor time.
can only an ever be a system of dynamic disequilibrium.
Equilibrium in a mode of production dependent upon structural inequality is [structurally] impossible.
Marx, even, at moments, thinks capitalism must achieve, or must tend toward a condition of “equilibrium.”
Well, like the average rate of profit, equilibrium is conspicuous only in its absence. It exists as a mathematical abstraction contradicted by the concrete. It exists only, and at best, momentarily and never necessarily.
6. Value production depends upon and creates the absence of equilibrium. The persistence of the condition propels accumulation, expanded reproduction.
What matters in a mode of perpetual imbalance is growth; is the rate, the ratio, the proportion, the increment of growth, expansion, accumulation; so much so that the principal and the recovery of principal is moot and mute as long as the increment of growth can satisfy its complementary opposite, the rate of interest, which is why debt can be refinanced and refinanced until capital can no longer satisfy the debt service.
The US Federal Reserve pretends and believes in this pretense, like bankers everywhere, that stability is essential to the preservation of the capitalist mode of production so its programs are designed not to expand production but to forestall the devaluation of assets.
All the programs with all the acronyms deployed against the implosion of 2008-2009, and redeployed after 2019 succeeded in the function of stabilizing capital, of interrupting the momentum of devaluation and bankruptcy, of preserving personal wealth, of enhancing that wealth by inflating asset value .
All the programs with all the acronyms deployed after 2008-2009 and redeployed after 2019 failed in expanding the reproduction of capital. The index of industrial production, reaching a post-WW2 mark in December 2007, was not exceeded post-2008 recession until the May 2014-January 2015 period, and then by less than one (1) percent. That level was itself exceeded after the shadow recession of 2015-16 only in the period of June 2018 to January 2019 before dropping below the 2007 peak.
Equally, if not more important, the growth in 2014 and 2018 can be attributed entirely to increased production and price of petroleum due to activity in the shale oil centers in the Permian Basin and the Bakken Field. Manufacturing activity remains flat and consistently below its 2007 peak:
The heroic efforts of Bernanke, Yellin, Powell have amounted to….stagnation. It’s not true, you can’t really can measure an age by the size of its heroes. It is true that you can measure an age by the achievements of its heroes. Size matters here, and Bernanke, Yellin, Powell, are perfect heroes for a perfect age of short-statured, short-fingered, short-time, and dollars short con-artists– which gets us to a not unsupported assertion:
Only a person with immeasurable reserves of vulgarity, cruelty, ignorance, and venality like Trump can simultaneously embody all the characteristics of his class, and at the same time, make an absolute mediocrity like Biden appear as a rational alternative. Only an absolute mediocrity like Biden, always seeking a new war after abandoning the old war, can make the bourgeoisie remember with fondness the rule of the vulgarian.
Follow the money: who benefits if Biden succeeds in fomenting war with the Russian capitalists over the Ukraine? The US liquified natural gas producers, that’s who.
This does not mean any Marxist should rise to the defense of Russia. Supporting Russia can only produce more reaction. The potential for social revolution requires the overthrow of the class of “hostile brothers,” that co-dependent bourgeoisie.
The essential truth remains that the complete collapse of the capitalist markets and relations is the lesser evil when compared to its “reformation.”
January 30, 2022